When it comes to land tax exemption, the rules can be complex, and it is not always clear whether a trust can access this exemption. The answer, according to senior associate Keeghan Silcock, is that it depends on the jurisdiction and the type of trust.
In Australia, land tax is state-based, and the rules vary across different states. Silcock focuses on Queensland and New South Wales, where the rules are distinct.
Queensland Land Tax Exemption
In Queensland, trusts can generally access the land tax threshold or a reduced land tax threshold of $350,000, compared to the individual land tax threshold of $600,000. However, the trust will pay tax on the unimproved value of the land above the $350,000 threshold.
There are also aggregation rules that apply when a trustee is acting as trustee of multiple trusts, which could potentially mean that those trusts are grouped together for land tax purposes. This typically applies when the beneficiaries of the two trusts with the same trustee are the same.
For discretionary trusts, there are special rules to determine who the beneficiaries are in a particular year, based on who receives income and capital distributions or who are the default beneficiaries.
New South Wales Land Tax Exemption
In New South Wales, the rules are entirely different from Queensland. Trusts will only be able to access the land tax threshold if they qualify as a fixed trust, meaning all beneficiaries have a fixed entitlement to income and capital.
The trust deed must also contain special wording prescribed by the legislation, which not all trusts that may be considered fixed trusts will have. For example, a fixed unit trust will automatically qualify as a fixed trust for land tax purposes in New South Wales.
Discretionary trusts cannot qualify for the land tax threshold in New South Wales because of the discretionary nature of income and capital distributions. As a result, discretionary trusts will be assessed for land tax based on 100% of the unimproved value of the land, without access to the threshold.
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This significantly increases the land tax liability for the trust, making trust structure a key consideration when advising clients on the best structure to use for land tax purposes in New South Wales.
If a trust does qualify as a fixed trust in New South Wales, it will access the general land tax exemption available to individuals, which is currently $1,075,000. However, the beneficiaries of the fixed trust will be assessed for land tax based on their share of the interest.
Understanding these rules is essential for trusts that own land in Queensland or New South Wales, as it can impact their land tax liability.
Implications for Trusts
The different rules in Queensland and New South Wales can have significant implications for trusts that own land in these states. Trusts that are not aware of the rules or do not structure themselves correctly may end up paying more land tax than necessary.
By understanding the rules and structuring themselves correctly, trusts can minimize their land tax liability and ensure they are taking advantage of available exemptions. This can be particularly important for trusts that own multiple properties or have complex structures.
In terms of numbers, the land tax threshold in Queensland is $350,000, while in New South Wales, it’s $1,075,000 for fixed trusts. Discretionary trusts in New South Wales will be assessed for land tax based on 100% of the unimproved value of the land.
Trusts must understand the rules.
Trusts that take the time to understand the rules and structure themselves correctly can ensure they are taking advantage of available exemptions and minimizing their land tax liability. They can also consider the impact of other tax laws, such as those related to payroll compliance, on their overall tax situation.
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